Wednesday, Jul 9, 2008
That doesn't seem likely. And perhaps that explains the Wall Street Journal editorial and other conservative efforts to convince poor and middle-class Americans that they have good reason to pay more in taxes: They must do so to save our democracy. Republicans have long argued that the progressive tax system constrains overall economic performance; now they're arguing that it also lets people feel OK about demanding government benefits, which to them is an unmitigated horror.
The idea that the poor aren't taxed enough would seem politically indefensible, but some conservatives are coming up with a number of tortured explanations to support it -- including the creative suggestion that the Social Security tax, the most burdensome tax on the poor, is not really a tax at all. (It's a retirement program!)
Liberal economists, by contrast, say that the poor aren't undertaxed at all; the rich pay such a high share of taxes, they maintain, because they are so much richer than (perhaps ever) before. But some economists worry that the administration could gain devotees for its tax-the-poor ideas, which would be a major boon to conservatives' long-term flat-tax goals. "They're trying out lots of different things," says William Gale, an economist at the Brookings Institution. "But I think it would be a mistake to say they can't possibly believe this. It's a very well orchestrated campaign."
During the past couple of decades, the wealthiest Americans have been paying an increasingly larger share of the federal income tax money collected by the government each year. The richest 1 percent -- those earning about $290,000 and up -- contribute 37 percent of the government's total income-tax take. The wealthier half of Americans pay 96 percent of the income tax burden, while the poorest 50 percent contribute only about 4 percent. This arrangement may seem quite nice for the majority of the population, but many fiscal conservatives worry that it will lead the United States to big-government perdition.
"How can any free nation survive when a majority of its citizens, now dependent on government services, no longer have the incentive to restrain the growth of government?" Rep. Jim DeMint, R-S.C., asked at a lecture he gave to the Heritage Foundation in 2001. "Today, the majority of Americans can vote themselves more generous government benefits at little or no cost to themselves. As a result, most have little fiscal incentive to restrain the continued growth of Big Government and the entitlements it dangles before them."
But is the rich's share of the tax burden really significantly different from what it was in other periods? Not really. William Beach, a right-of-center economist at Heritage, points out that before the U.S. collected income taxes, most federal money came from property owners and others -- like railroad operators -- who used government services. "In that sense I guess you could say that government was paid for and supported by people who had the means to do so," Beach says. Even after the income tax was instituted, in 1916, "it was focused on people who were wealthy and had high incomes. It was conceived as a tax that would fundamentally be paid by wealthy people."
But everything changed in the 1930s and '40s. "We moved to a totally different tax then. First the payroll tax, supporting Social Security -- that was paid by middle- and lower-income people. Then in World War II, there were demands for revenue that were unprecedented in history. The middle class began to bear a large portion of the tax increase. And we had a change in philosophy that says there is a connection between what the government does and what the middle-class is willing to pay."
This view held until the 1970s, when what Beach calls "the politics of tax" came into vogue; politicians realized that they could ratchet up the taxes on the rich and provide benefits to the middle class, a strategy that "disconnected an increasingly larger share of people from the tax system," Beach says. Nobody wielded this tax-the-rich weapon more masterfully than Bill Clinton, who -- to the delight of the vast number of Americans, and the frothing-at-the-mouth fury of many tax conservatives -- in 1993 raised taxes on the rich, gave generous tax credits to the poor and, at the same time, ushered in a historic economic expansion.
Beach is not convinced that we are yet at a crisis point in the distribution of taxes. "I don't know if it's untenable," he says. "And certainly there are countries that have not paid as much attention to this as we have. But I am concerned about the future. There should be a connection in our system between citizen benefits and what you pay. If you are disconnected, you may not realize that the benefits you're demanding cannot be afforded."
Beach's position makes some sense; it's logical to assume that if the rich keep paying more and more of the taxes, there'll come a time when the poor and middle class might think nothing of voting themselves more and more federal money. But are we at or anywhere near that point yet? Liberal economists say we're not.
When they talk about the tax burden on the wealthy, conservatives conveniently skip some facts. First, despite their tax burden, studies show that the rich aren't doing so badly at all -- indeed, they may be doing better than ever. And conservatives also like to discuss just the federal income tax while ignoring all the other federal taxes -- especially the payroll tax -- paid by the poor and middle class. When you factor in those taxes, it's difficult to argue that the poor are very lucky duckies.
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